IGI Logo

A Sturdy Show

Performance remains strong

CREDAG’s performance remained strong in Q3 FY24 with AUM/NII growth in-line with expectations and PPOP being 4% higher than our estimate reflecting further productivity gains. There was some PAR and credit cost increase which is transient, as were largely driven by delinquencies from TN floods in Dec which have significantly normalized in January. Disbursements were impacted in November on account of CBS upgrade, but business/customer acquisition has markedly improved from Dec. AUM growth stood 4% qoq/31.5% yoy and NIM/RoA/RoE were sustained at higher levels of 13.1%/5.5%/24%. Co. has cut lending rates by 50 bps in Dec-Jan in view of improving opex metric, peaking of funding cost and normalization of credit cost, and hence the Management does not expect any impact on NIM and RoE. The enhanced pricing advantage would aid in sustenance of growth and portfolio quality.

Retain BUY with raised 12m PT of Rs1950

Our FY24/25 estimates are largely unchanged. Q4 FY24 would be a robust quarter on growth, asset quality and earnings. Notwithstanding the strong performance of the stock in recent months, we see room for further valuation re-rating in the absence of RoE risks at this point. The stock has traded at 3.5-4x 1-yr fwd. P/ABV before Covid with 16-18% RoE delivery. Currently CREDAG’s RoE is far superior, and it would not require equity raise for 23-25% pa GLP growth. Franchise attributes like high customer retention/borrower vintage, lower field attrition, industry-best loan processes & policies, lowest pricing, stronger quality control & audit mechanisms, etc. underpin company’s sturdier growth and profitability. We estimate a CAGR of 25% in GLP, 39% in PPOP and 47% in earnings over FY23-25 barring any external shocks.

Granular and diversified growth momentum

Portfolio growth remains guided by strong customer addition, prudent ticket/tenor policies, regional portfolio diversification, improving distribution productivity and sturdy asset quality. CREDAG added 2.7 lac customers in Q3 FY24 and 15 lac borrowers in past 12m with more than 40% of them outside the Top 3 states. With the acceleration in new customer addition, the vintage profile of borrower base has been shifting, resulting in stable avg o/s per borrower. More than 85% customers are retained by the co. for the next cycle loan. There was attrition of 0.6mn customers in the past 12m on the opening base of 3.9mn. Contribution of 3-year loans increased to 31% of the book, which are offered to high-vintage customers seeking >Rs75000 loan.

NIM steady; PAR/Credit Cost increase marginally due to TN floods

NIM was stable at 13.1% with steady Portfolio Yield and CoB. Disbursement Yield was 20 bps lower qoq, on account of lending rate reduction from Dec and risk profile of the customers onboarded. Incremental CoB has been stable for the past three quarters and seems to have peaked out. Despite 50 bps lending rate cut, the co. expects to maintain NIM in future. PAR 0/Stage-3 increased by 50/20 bps on account of TN floods in Dec, driving increased credit cost of 2.2% for the quarter. However, a substantial portion of the flood delinquencies have normalized in Jan, and thus Management expects moderation in credit cost in Q4 FY24. Write-offs continue to be moderate at Rs0.6bn and recovery of bad debts has been consistent at around Rs110mn per quarter.

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632